Product-Led or Service-Led Growth: Which is a Better Fit for Your Business?
Ed Arnold is a Senior Advisor at Ibbaka. See his Skill Profile on Ibbaka Talent.
Ed Arnold has led product development at LeveragePoint, a SaaS solution for value-based pricing and sales, and at Forrester Research where he was VP of Products for CX (Customer Experience) Analytics. He is a leading expert in value-based pricing and go-to-market strategies and how these energize the customer journey.
Steven Forth’s recent article, “Pricing for Service-Led Growth” makes a strong case that Product-Led Growth (PLG) isn’t for everyone. Despite the spectacular success stories around PLG-driven companies like Slack, Twilio, and Zoom, it is not a sure-fire blueprint for all companies. Steven proposes an alternative Service-Led Growth (SLG) approach; one that is well worth considering before jumping onto the PLG-bandwagon.
This is not intended to start an academic debate about which approach is better. That isn’t useful to anybody, particularly if we need to address a revenue growth problem. Successful business people always have adopted and adapted best practices to suit their purposes. So with that thought in mind let’s do a quick comparison. There are certainly differences in terms of focus and resource management. Below is a partial list of key attributes:
For the Objectives see What is Product-Led Growth? By Blake Bartlett, OpenView and Pricing for Service-Led Growth by Steven Forth, Ibbaka.
I can imagine Blake Bartlett from OpenView replying that SLG is only the conventional approach for what he calls the “The Exec Era” of software history -- and which is now rapidly being overtaken by the “End User Era” that is best served by PLG. No real disagreement here. The evolution in technology (flexible infrastructure, APIs, modular tools) not to mention the rise in a distributed workforce truly signals a shift of influence from executive to end-user. Yet last time I looked, enterprise executives still own a lot of the software spending decisions and have more than a passing interest in the impact of these systems on their organizations.
Comparing Service-led growth and Product-led growth
One is the relatively low average contract value of PLG companies. Many, for example, DropBox and Slack are below $5K/year. The point is that high PLG growth is easily explained by classic microeconomics theory: low price + high utility + super convenience drives huge demand. That plus building economies of scale by plowing R&D dollars back into the product and the automated self-service marketing and executing the customer success model. Its fabulous success is reminiscent of the 1960s when McDonald’s essentially redefined the fast food restaurant category with low pricing and maximizing end-user utility.
You can anticipate what will happen to PLG companies as the End User Era begins to mature. ACVs will steadily rise as individual end users consolidate at accounts and they grow into an enterprise-wide system. At this point, the self-service model will evolve into something more service-like, i.e., employing customer service professionals and even sales professionals to interact with non-user executives. To use a popular animal analogy, no longer is the target account a mouse or rabbit, but rather more elephant or whale-like. The result will be a shift of R&D spending into professional services talent building.
Economics also predicts that the market demand curve will begin to flatten due to new competitors. Accordingly, professional services do become important differentiators for the elephants and whales alike. Indeed it will be interesting to see how these PLG superstars will adapt in the future.
Yet there is much to love about the PLG philosophy. Any business, particularly services companies with digital and data components to their solution would do well to embrace these PLG best practices such as:
Laser-focus on understanding and solving end-users problems
Design the customer journey so that they receive immediate value
Seek to remove friction anywhere in the sales process
Consistently strive to build and support grass-roots adoption
A goal of Service-Led Growth is to build deep, trusting relationships with customers. This requires providing a digital component of software and data. One cannot end with data though, the Service-Led Growth flywheel relies on insights to build momentum. Extending customer lifetime value is challenging for pure professional services businesses like consulting because these tend to be more transactional and project-based. Service-led growth is not professional services. It is built on the synergies between services, digital applications, and data-driven insights.
Companies that want to execute on Service-Led Growth need to get all three right.
Read other posts in the Service-Led Growth series
Product-Led or Service-Led Growth: Which is a Better Fit for Your Business? (this post)